US equity allocations relative to the rest of the world are close to the most stretched in over 25 years, according to State Street’s latest Risk Appetite Index.
The index rose to 0.27 in November, signalling a fourth consecutive month of risk-seeking activity.
Long-term investor allocations to equities rose by 100 basis points to 53.8% in November, the highest level in 16 years. Investors sold down allocations to cash and fixed income, falling 20bps and 80bps respectively.
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“While there are plenty of uncertainties about growth, policy and politics in the coming year, investor positions suggest their conviction in a US-led equity market rally is unflinching,” said Michael Metcalfe, head of macro strategy at State Street Global Markets.
“Not only is the overweight in equities high historically, it is also concentrated. Across the regions we track, the US is the only zone investors are currently overweight and it is a sizeable holding.
“By the end of November, holdings of US equities relative to the rest of the world were close to the most stretched in the 26-year history of State Street Global Market’s data set. In short from the point of view of long-term investor holdings, the US has rarely been so exceptional.”
Meanwhile, investors reduced weightings to European equities, with allocations falling to a new eight-year low after starting 2024 at a neutral positioning.
Demand for French bonds also suffered ahead of the fall of the French government. However, State Street’s Metcalfe said that investors remain overweight to other high debt countries in the Euro area such as Italy, which is a ‘telling sign’ of the lack of contagion for now.